In futarchy, democracy would continue to say what we want, but betting markets would now say how to get it. That is, elected representatives would formally define and manage an after-the-fact measurement of national welfare, while market speculators would say which policies they expect to raise national welfare. The basic rule of government would be:

When a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law.

I haven’t yet digested this much, but I wanted to see what other people’s initial reaction was to the idea. Is it something we should be discussing more? Obviously it’s not realistically going to happen anytime soon, but with what we’ve learned about markets even in the past decade, what do you think?

There’s an excellent (once-a-month excellent, if I can say that) article that appeared on the nyt website yesterday on Barack Obama’s economics philosophy, and ideas for what we need to do to fix the state we’re in. If you have time (it’s 8 pages, but worth it), it explains a lot about the politics of economics over the last few presidents, and is very clearly written and applicable right now.

Here’s an excerpt that sums up the gist of Obama’s views. This came in response to a question, after an hour of economics discussion with the journalist, as to whether or not Obama “had a message that compared with Reagan’s simple call for less government and lower taxes.” Obama’s reply:

I think I can tell a pretty simple story. Ronald Reagan ushered in an era that reasserted the marketplace and freedom. He made people aware of the cost involved of government regulation or at least a command-and-control-style regulation regime. Bill Clinton to some extent continued that pattern, although he may have smoothed out the edges of it. And George Bush took Ronald Reagan’s insight and ran it over a cliff. And so I think the simple way of telling the story is that when Bill Clinton said the era of big government is over, he wasn’t arguing for an era of no government. So what we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that the government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market. And it’s now a global marketplace.

Now, that’s the story. Now, telling it elegantly — ‘low taxes, smaller government’ — the way the Republicans have, I think is more of a challenge.

Read the article if you want more. I solidly agree with the bulk of Obama’s general economics positions, at least most discussed in this article, and also that we all need come up with a pretty package for it. If you come up with something great, let me know. If you disagree, keep quiet let me know.

It started popping up in the news throughout Tuesday, and got the front-page writeup Wednesday: after 7 years of trying, the Doha round of free trade talks have been declared over with zero agreed on.

The NYTimes and others write in detail about what the US says on one side, and what India and China say on the other, about what went wrong, and who’s the stubborn one that cares more about guarding against risks to their own pocketbook than moving forward the world economy. But, like a lot of news, there’s very little discussion of why anyone should really care much about all this.

I believe the standard position I hear from economists: that the principle of free trade is good, just like free markets in general, but that it causes problems for the people on the losing side of the equation when wealth and jobs are redistributed within a country and throughout the world. Still, it’s not second nature for me to think of what some real ramifications could be of free trade stopping its recent forward march, or of turning around and retreating. But I happen to be reading a book that does a fine job of discussing that. Saving Capitalism from the Capitalists, which generally is about the benefits, causes and curses of free markets, spends some time on free trade, and its importance to free markets and competition within a country, so I thought I’d share a few lines.

First, a huge problem free markets generally run up against is the whims of democracy. To illustrate this, the authors discuss what happens once a country has had a free market for a time–long enough to have some very successful large companies that now dominate their industries.

Those in power–the incumbents–prefer to stay in power. They feel threatened by free markets.

So you’ve got big, successful companies that now dominate their industries and have tons of cash, and these guys are looking to put a bit of a damper on the “free” aspect of markets and competition to maintain their position. The winning firms want to hold onto their power. They’ve got cash. The distressed (to a large extent, the ones who lost their jobs) are numerous, loud, and rally in the name of reversing the damage. In their words,

…incumbent groups ride the coattails of the distressed back into power.

The two groups combine their political influence to enforce regulations on the market. For the dominant companies, the goal is to restrict competition. For the distressed workers, it’s to bring about a system more like the old days, with less risk and less change foreseen. The main defense against regulating away competition, which eventually makes the industry stagnate and under-perform compared to the industry in other more competitive countries, is opening the country’s borders to allow trade with other countries. Competition from the outside prevents our government from regulating markets out of existence in the name of smoothing risks and preventing further damage to the distressed.

Open borders limit the ability of domestic politics to close down competition and retard financial and economic growth.

Why don’t we hear about the effects of closed borders on developed countries more these days? Mainly, the authors believe, because these days it’s quite hard for developed countries to successfully keep out foreign competition, given how open the world as a whole has become.

A country’s borders are porous. When the rest of the world is open, it is difficult for any single country to put up barriers to the flow of goods, capital, and people. … So when the world is open, its borders will perforce be open unless it is a police state. Incumbent interests will be subdued.

But if we allow the world as a whole to drift backwards, we risk those rules of the game changing significantly. Countries have the ability to close their borders en masse and keep out competition to protect incumbents and ailing industries. The Doha Round of talks, at the beginning, was supposed to outline a set of commitments among most of the largest economies in the world to continued opening-up of borders and freeing-up of markets that are currently not very free. In the end, the hope was to at least get everyone to commit to at least keep trade about as open as it currently is. Unfortunately even that failed.

So let’s do what we can to keep from rolling backwards on free trade.

[Update: As I should have expected, the Economist put out a piece in their latest issue, online just a day after my post, with a lot better treatment of specifically what the eventual goal of the Doha talks at the end were, and what that failure specifically means: The Doha round…and round…and round]

In case you didn’t catch this, there was an article today in the New York Times outlining the major points in a Bush Administration climate change report, commissioned in 2003 and released today, signed by 3 cabinet members. On the map you can see the projected increase and decrease in annual rainfall for different areas of the country, and the journalist also pulled out the following interesting conclusion:

The West will not only face a dearth of water, but also large shifts in when it is available. Water supplies there will be transformed by midcentury, with mountain snows that provided a steady flow of runoff for irrigation and reservoirs dwindling. That flow will be replaced by rainfall that comes at times and in amounts that make it hard to manage, the report and authors said.

Also, to put this into context, “the report’s emphasis [is] on the next 25 to 50 years, when shifts in emissions are unlikely to make much of a difference in climate trends.” So there’s not much we can do about it, in the authors’ view.

So it’s understandable but important that not only will the amount of precipitation be changing a lot, but the type and timing of that precipitation is likely to change dramatically, so much so that I’d guess skiing in the rockies will be dramatically affected. And keep in mind that this conclusion comes from a review of recent climate change studies, summarized and signed off on by the Bush Administration. We’ve come a long way in a few years.

This is of course not to say that a good chance of not being able to ski in the continental US within a few decades is up there with the biggest ramifications of climate change. It just drives the point home that life is going to be measurably different a few decades from now in many ways we may not yet realize–we won’t just be able to crank up the a/c a bit in the summer and enjoy the milder winter and be done with it. And it seems it’s already too late to stop some of those significant changes.

This book is outstanding, and if its principles were taught in American history classes instead of the smorgasbord of facts and dates and ideas taken out of their historical context, people would see America’s place in the world much more clearly. Honestly it made me feel like the basis for my opinions on how our country should be treating foreign policy went from ehh to decent, which I’d highly recommend to anyone. If you do start reading, be sure you don’t get bogged down in the details of England’s history in the past few hundred years, and focus more on how America’s view of what it is and what it stands for developed from that foundation. In the end, the outlook of our future is generally optimistic, with the author highlighting our incredible progress this past century and calling most of all for patience and some self-restraint in bringing our views and insights to parts of the world that need them.

Here’s a link to buy it at amazon. Or you can read my short 5-star review there.

I was reading the leader in the 4/11 economist regarding america’s slowing growth, and the following line of the economist made me think about gdp, happiness, spending, etc: “spending will be supported by tax rebates in the second half of the year”. I feel like it relates to some things that umair (umair haque–see my blogroll) has discussed recently, though a lot of it comes from some of the ideas behind god and gold–that national influence comes first from economic strength.

Briefly, reading this statement made me go through the following connections, which I thought just passed the interestingness bar for something worth sharing.

The government thinks consumer spending is good, and will give people money to spend when they see the economy (gdp growth) slowing.

The reason they see consumer spending as a good thing is not out of any particular care for the happiness or well being of people in the short term, but it’s because they want the size of the economy to continue to grow, in terms of output and consumption.

The reason they want output and consumption to grow is behind a lot of the discussion in god and gold as to how england realized that commerce was driving their ability to lead the world in military power and general influence.

The more the country produces and consumes, the harder the country works in general, and even if the wealth decays (people buy crappy tvs at walmart that break in a year and get thrown away), people working harder means the government has more possibilities to accumulate and grow militarily, and it also means the government can use that economic turnover as leverage in dealing with other countries.

This isn’t doing any good for the people in the country necessarily per se, except that it allows the country to have its way with the rest of the world, enforcing its values and interest.

Just to sum up, I’m not saying that I think economic growth and development is pointless (I think national influence can be and generally is a good thing) or harmful (unless it comes at the expense of peace, general prosperity, or other sources of value on a national or global scale). All things being equal, and as long as the costs of environmental damage and resource usage are properly allocated, which they currently aren’t, I think economic growth is fundamentally a very good thing, and that progress and technological development make the world a better place. But focusing only on national and world gdp, as currently measured, as our main measurement of progress doesn’t perfectly target what we really should value. We just need to be aware of where our metrics don’t line up with our true goals, and work to change and hone those metrics.

Please feel encouraged to drop a comment and let me know what you think.